Weekly Indicators for March 10 - 14 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Despite the steep sell-off and rebound in the stock market this week, the underlying “hard data” indicators about money, spending, and transportation were all steady and almost all positive. The sell-off was about sentiment due to the uncertainty brought about by the Administration’s “policies” in Washington.

As usual, clicking over and reading will bring you up to the virtual moment as to the state of the econony, and bring me a penny or two for my efforts.

The Quick and Dirty forecasting model now says . . .

 

 - by New Deal democrat

No important economic data today, but since yesterday was an exciting day at the horse track, with the S&P 500 officially entering 10% “correction” territory, let’s update the quick and dirty forecasting model.

As an aside, 10% corrections typically happen about once a year. They are typically driven by some unexpected mini-crisis (e.g., a bank blowup), creating a panic. At about the 10% sell off level, a regulatory agency like the SEC, Treasury, or the Fed steps in and takes steps to resolve the situation. The mini-crisis passes, and stock prices quickly make up their losses, resulting in a “V” shape in the charts.

But this sell-off has been prompted mainly by T—-p’s personal economic predilection for tariffs, and his strategy of always escalating. There is no regulatory agency that can step in and resolve this issue. Which, needless to say, very much worries Wall Street, and is why the sell off started in real time as T—-p was making another tariff announcement.

The net result is that the S&P 500, which was up 40% YoY in the week just before the Presidential Election, is now only up 7.2% (blue in the graph below). And as I reported yesterday, the four week average of initial claims is higher by 8.3% (red, inverted):

The model simply requires that both stocks and initial claims to be negative YoY. Since my initial claims forecast requires claims to be higher by at least 10% YoY for even a yellow caution flag, the above graph is normed so that the 10% higher YoY level shows as 0.

The quick and dirty model is not forecasting recession at these levels, but it is closer than it has been in several years, and needless to say, the trajectory is not favorable.

Here is what the S&P 500 looks like on an absolute basis:

To turn negative YoY in the next few weeks, the S&P 500 would have to sell off by about another 4% to the 5250 level. A few more tariff escalations and retaliation by our (now former?) Allies might do the trick.

Producer prices may show first inflationary effects of tariff wars

 

 - by New Deal democrat

I typically do not pay much attention to producer prices. Sometimes they do lead consumer prices, but since the turn of the Millennium more often they have been coincident. But with the onset of tariff wars, they may set off some of the first alarm bells.

And that may have been the case as of February’s report, released this morning. While final demand prices were unchanged, commodity prices increased 1.0% in the month alone. Combined with January, commodity prices have already risen 2.5% this year, the biggest two month increase since spring of 2022:

The YoY graphs show similar inflationary pressures apparently beginning to build:

On a YoY basis, commodity prices are higher by 1.9%, and final demand prices by 3.2%. Note that commodity prices include gas and oil, and are typically much more volatile than final demand producer prices. 

Getting into trade wars with the rest of the world, with escalating retaliatory tariffs, plus taking a chainsaw to employment in federal agencies and their counterparty contractors: what could possibly go wrong?

Jobless claims: no longer “steady as she goes,” but no yellow flag either

 

 - by New Deal democrat

Initial jobless claims last week declined -2,000 to 220,000, while the four week average increased 1,500 to 226,000. With the typical one week delay, continued claims declined -27,000 to 1.870 million:

On the YoY basis more important for forecasting purposes, initial claims were up 4.2%, and the four week moving average was up 8.3%. Continued claims were up 3.7%:

These are “neutral” readings. While they indicate some weakness, they do not indicate recession.

State level data from one week ago indicated that while layoffs from federal government jobs are having a pronounced local effect in the Washington DC metro area, they are only increasing the weekly totals by about 2,000:

In DC itself, claims were up 853 YoY to 1405, an increase of 154.5%. 

In MD, claims were up 238 to 2,585, an increase of 10.5%.

And in VA, claims were up 707 to 2,881, an increase of 35.4%.

For all three jurisdictions, claims were up 1,798, and increase of 35.4%.

It is actually surprising that there has been no greater effect in these numbers.

Finally, here’s an update of what initial + continuing claims imply for the unemployment rate in the immediate months ahead:

Because the graph indicates YoY% changes, the proper calculation is 3.9% unemployment one year ago increasing by roughly 5% (i.e., 3.9*1.05), suggesting unemployment, which was 4.1% in February continues in that range.

In any event, while it isn’t quite “steady as she goes” anymore, it’s not yellow flag territory either.

February CPI: a very good report, with even the chronic “problem children” getting “less bad”

 

 - by New Deal democrat

Let me cut right to the chase: the February consumer inflation report was actually very good. It wasn’t just that the headline and core numbers only went up 0.2% for the month, or that the YoY gains in each decelerated. Let me let you in on a little secret: one of the first things I do when the report comes out is scour the categories for any “problem children,” which I arbitrarily define as a category where there has been more than 4% inflation YoY.

This month, outside of the two most lagging suspects, shelter and transportation services, there were none outside of some really obscure small components, like men’s suits. And even in the case of the two remaining problem children, both decelerated, especially on a YoY basis.

So let’s get to the graphs.

First, here are the headline (blue), core (red), and ex-shelter (gold) YoY% numbers:

On a YoY basis, headline prices were up 2.8%, core was up 3.1%, and ex-shelter prices were up 2.0%. The YoY headline number was the lowest in 4 years outside of the soft patch late last year. The core number was the lowest in almost 4 years period. 

Interestingly, CPI less shelter jumped 0.5% in February. This might give me cause for concern, but when I looked back at the monthly data for the past 10 years, the February readings in this metric have typically been among the highest of the year, suggesting unresolved seasonality issues. Here’s the relevant graph (I know, squiggles, but trust me many of the big jumps have been in February):

Now let’s turn to the chronically big problem child: shelter. This increased 0.3% for the month, tied for the 2nd lowest monthly increase in the past 2.5 years. And on a YoY basis, at +4.2%, it was the lowest in over 3 years. The below graph breaks it down into its Owners Equivalent Rent (red) and rent of primary residence (blue) components on a monthly basis:

You can see that the downtrend remains intact. And the same is true when we look at it YoY:

At 4.4% for OER and 4.1% for actual rent, both are at 3 year lows. Although I won’t bother with the graph today, since this series lags actual house prices, I continue to expect slow disinflation winding up somewhere around the 3.5% range within the next 12 months. This is buttressed by the most recent updates for new rent prices, which continue to be flat YoY.

The news is also “less bad” for the other, even more lagging problem child, transportation services. This is primarily motor vehicle insurance and repairs, which go up in price after the price of vehicles and vehicle parts go up. For the month, it was unchanged, and on a YoY basis, it was up “only” 6.0%, nevertheless the best reading in 3 years:

Cleaning up a few other points, the former problem child of vehicle prices continues its normalization process. New car prices were unchanged for the month and actually *down* -0.3% YoY, while used car prices increased a sharp 0.9% for the month, but are only up 0.8% YoY:

Note the above graph norms both to 100 just before the pandemic. Since that time new car prices are up 20%, and used car prices up 33%. This is a lingering after effect of the shortage of new cars in the first several years after the pandemic due to the inability to produce computer chips in sufficient volume. Although I won’t bother with the graph today, keep in mind that average hourly wages are up 28.5% since the outset of the pandemic as well, so only used vehicles are higher in “real” terms since then.

And what about gas prices? CPI for energy increased 0.2% for the month, and is *down* -0.3% YoY:

No upward pressure there at all for the moment.

To sum up, as I said at the beginning of this note: this was a very good report. There were only two, lagging, continued problem children, and their contributions were lessening. As has been the case for the past 2 years, take out shelter and consumer inflation has not been a problem at all.

Finally, let’s see what that does for “real” wages and payrolls.

“Real” wages for nonsupervisory workers rose 0.1% in February, and were 1.3% higher YoY. The bad news is that they have been stagnant since October:

“Real” aggregate payrolls for nonsupervisory workers rose 0.2% in February (blue, right scale), but they remain slightly below their all time high set in December. Nevertheless they remain higher YoY by 2.3% (red, left scale), in line with their increasing trend over the past 24 months:

With the exception of the pandemic, and the 1970 recession, they have always peaked a number of months before the onset of recession. I will only be concerned if this series fails to exceed its December peak for several more months.

JOLTS revisions point to even weaker recent jobs market

 

 - by New Deal democrat

Before I tackle this morning’s consumer inflation report, yesterday I promised an update of the benchmark revisions to the various JOLTS indexes, for reasons that I think will be apparent upon viewing the graphs.

As I wrote yesterday, job openings for the previous 12 months were revised downward by an average of about -300,000 per month:

Hires were revised downward by an average of about -100,000 per month:

And quits were revised downward by about -60,000 per month:

Layoffs and Discharges were not materially affected.

Why did I make a point of this? Because throughout the latter part of last year there was concern that continued deceleration might tip into outright declines. This appeared to reverse in the last few months. But as I wrote a few weeks ago in discussing the latest update for the “gold standard” QCEW census for Q3 of last year, barring revisions in that series it looks very much like last year’s employment situation was even weaker than we thought at the time. 

And the revisions to the JOLTS series are of a piece with that further downshift. The latest information is that recently the jobs market has remained positive, but only weakly so.

January JOLTS report: monthly increases, but significant downward revisions to 2024

 

 - by New Deal democrat



To review briefly, the monthly JOLTS reports give us a more granular look at the employment sector, but are delayed by one month vs. the jobs report. Like the jobs reports, most JOLTS series have shown deceleration for several years. The question over the last year has been whether they level off or continue to decelerate towards outright declines in net job creation, or stabilize in a “soft landing.” 

Additionally, I look at this data because it is a slight leading indicator for both initial jobless claims and unemployment; and for wage growth as well.

For January, the JOLTS data released this morning with one exception was positive on a month over month basis. Unfortunately, this was counterbalanced by substantial downward revisions to all of the 2024 data on openings, hires, and quits. Layoffs and discharges were not materially affected.

For the month, the “soft” statistic of job openings rose 232,000 from near its post-pandemic low, while the hard data of hires only rose slightly, by 19,000. Quits rose by 171,000. The downside was that layoffs and discharges also rose, by 119,000. The below graph norms the series above (expect for quits) to 100 as of just before the pandemic:

In general, the good news is that there has been stabilization in the “hard” data since the middle of last year. But the bad news is that, on average, last year openings were revised lower by about -300,000 per month, hires by -100,000, and quits by -60,000. (NOTE: I will update this later).

When we look at hires and quits on a YoY% basis, there has been modest improvement in the decelerating trend; in other words, neither openings, hires, nor quits have leveled off at this point, but the trend is gradually getting “less bad”:

As noted above, the news on layoffs and discharges was negative on a monthly basis, but at least the data was not revised for the worse for 2024. Below I plot this data YoY compared with th e monthly average of initial claims, which has had some residual seasonality issues. And it accords with the weakness we have seen in the YoY increases in initial jobless claims since late last summer :

Finally, the quits rate (blue in the graph below) has a record of being a leading indicator for YoY wage gains (red). In the post-pandemic view, the quits rate stabilized earlier in 2024 before resuming its decline, but has stabilized at 2.0% +/-0.1% since June. In January it rose 0.2% from 1.9% to 2.1%, continuing that trend:

This continues to suggest that on a YoY basis wage gains may also remain stable in the months ahead as well, which is good news - as long as inflation does not pick up.

Scenes from Friday’s jobs report: the (totally contradictory) Big Picture

 

 - by New Deal democrat

There is no important economic data today, so let’s take a closer look at some of the noteworthy items from Friday’s jobs report. I’ll start out with the Establishment Survey side, and then turn to the Household Survey side.

Goods producing vs. service providing

In the past, a turndown in goods producing job has always preceded a recession. Any turndown in the service sector has happened much later. So I have been focusing on the former.

In February, the goods producing side added 34,000 jobs, its best showing since June of 2023. On a YoY basis, goods producing jobs are up by 0.4%, while service providing jobs are higher by 1.4%. The below graph norms each of those levels to zero:

The pace of decline in each sector is decelerating. Whether it has stopped is very much open to question.

The norming of current YoY levels to zero was for the purpose of showing the long term historical comparisons, as below, first from 1948 to 1982:

And secondly from 1982 through 2019:

The first thing to notice is that the goods producing sector has *always* turned negative first, with the sole exception of the 1982 Volcker-induced recession, when they both turned down simultaneously. Note also that there have been 5 occasions when the goods producing sector turned negative YoY without a recession occurring. 

Second, while before 1982 the goods producing sector might not turn lower than its current YoY level until after a recession had begun, since then goods producing jobs have always been lower by about -2% more than its current level before the onset of a recession - and sometimes lower than its current YoY level for over a year.

How close are we to that? Here is the absolute level of goods producing jobs, normed to 100 as of last May:

With the jump in February, this sector is higher by 0.2% than nine months ago. The most reasonable pessimistic case is that it won’t be lower YoY until at least May - and even if it turns down, it could be much longer than that.

The bottom line is that employment in the goods producing sector is not forecasting a recession any time soon.

Housing construction

There is one sub-sector that I’ve been paying particular attention to, because although I won’t bother with the graph, manufacturing jobs have been down since February of 2023. It has been construction, and specifically housing construction, which has been holding up the goods producing sector. And as I’ve recently written, although housing permits, starts, and sales turned down long ago, housing units under actual construction levitated for many months thereafter before finally turning down last year. And I pointed out that usually jobs in housing construction have typically levitated for many months after that.

And the levitation of employment in housing construction continued in February, still up by over 2.5% YoY (red, left scale in the graph below) although only 100 jobs were added (blue, right scale):

In other words, the upward trend in housing construction doesn’t even show any signs of slowing down yet. 

In summary, that’s why the Establishment report on Friday was positive. Now let’s turn to the Household survey side, which was horrible - in other words, once again it was recessionary.

Unemployment and Underemployment

The headline was that the unemployment rate ticked up by 0.1% to 4.1%, and the broader underemployment rate spiked higher by 0.5% to 8.0%, the highest level in over 3 years. 

As with the above, I am going to focus on YoY comparisons. On that basis, the unemployment rate was higher by 0.2%, and the underemployment rate higher by 0.7%. Again, for historical purposes here is that graph for the last several years, normed to zero as of the latest readings:

While the U6 underemployment levels are noisier than the unemployment rate levels, the YoY increases in each has decelerated in recent months, which is a good sign.

But now let’s look at that historically. Because the U6 data didn’t start until 1994, here is the unemployment rate YoY before than:

And now here is the record for both from 1994 until the pandemic:

With respect to the unemployment rate, while far more often than not even a 0.2% increase YoY has meant recession, there have been a number of false positives, including in the 1950s, 1960s, one month in the 1980s, and the near “double dip” in 2002.

But with respect to the underemployment rate, being higher YoY by the current level has meant recession in each case except for the 2002 near “double dip.”

But since this past month was a spike, let’s show the above graph again, this time using the average of the last 3 months, which is an increase YoY of 0.43%:

We still get the same result.

In other words, the changes in both the unemployment and underemployment rates are recessionary. But with the big caveat that they have been so for the past year or so, and no recession has happened. In other words, it looks like another false positive.

The Employment Population Ratio

I performed the same exercise with the Labor Force Participation Rate, including focusing on the prime age 25-54 rate, but to cut to the chase, it was of little value because of distortions from the entry of women into the labor force in the 1960s through the 1990s, and also due to the demographics of the Baby Boom followed by the Gen X bust, followed by the Millennial Boom.

But the employment population ratio does give meaningful information, particularly when we look at the prime age component. This declined -0.2% in February to 80.5%, which is down -0.4% from its recent peak last summer. 

Once again I looked YoY, and because this data is also noisy, I used the average the last three months, which was -0.033%. The below graph shows this data monthly (blue), and on a quarterly average basis (red):

Again, it is negative, but the pace of decline has stopped in recent months.

Now here is the entire historical look, also normed to zero as of the current 3 month average:

With the exception of several months in the 1950s, several months in 1995 and 1998, and the 4th Quarter of 2013, the current YoY decline in the prime age employment population ratio has *always* previously meant recession. But again, we have been at this level for nearly a year, and no recession has occurred - at least not yet.

I should add that I have two major concerns, one for each survey.

As to the Establishment Survey, the QCEW, which is the gold standard, on a preliminary basis indicates that employment gains last year through Q3 were about 500,000 less than currently shown. So this survey is likely to look weaker when rebenchmarked using that data - unless the preliminary QCEW data is itself revised higher.

As to the Household Survey, I remain concerned that it still is not properly accounting for the massive immigration wave of the several years immediately following the COVID pandemic. What i really mean is that the increases in the unemployment and underemployment rates, as well as the downturn in the prime age employment population ratio, might really be about recent immigrants finding it harder to gain employment than several years ago. Which means that the economy is still growing, just not fast enough to digest all of the new entrants to the market.

The “Constitutional Interregnum”

 

 - by New Deal democrat



Is there anything that can be done with a President who has the support of 1/3+ one member of the Senate?  Since he can’t be impeached and convicted, which requires 2/3’s of the Sentate, and as of last July per the Supreme Court he is above the criminal law in exercising his Presidential powers, apparently not.



A President in those circumstances who decides to do whatever he wants creates a complete lapse in the Rule of Law. Josh Marshall wrote an excellent essay last week, which is very close to my thinking, describing a “Constitutional Interregnum.” Here is the gist of it in quotes:



[C]ivic democrats in the US have far too great an essentialism about the law and constitutional jurisprudence, especially under the corrupted federal judiciary as it now exists. 

[For example,] Trump v. United States … isn’t a decision I disagree with. It’s simply wrong. . . .  [W]e must disengage from the idea that this is what the law is. It’s not. These are fraudulent decisions. 

We are living in a moment in which the system of legal, interpretive legitimacy has fatally broken down. It’s been in its death throes for a decade. Now it’s no longer operating at all. That throne is empty of anything that commands our allegiance or claims to legitimacy. . . .  [W]e are in this period of interregnum in which we are grappling with a renegade, corrupt court operating outside the constitutional order as well as a renegade and lawless president.

Fundamentally, it means grappling with the corruption rather than living within it, living within its ideas and ground assumptions and perforce being softly governed by them.

There are good odds the final decisions in the courts [concerning the actions of T—-p and DOGE] will themselves be corrupt and unconstitutional, at least in part.

The fact that we’re operating way outside the express text and logic of the Constitution, and no president in history has thought any of this stuff was possible . . . . We’re waiting to see if the courts will follow the Constitution. And there’s a good chance they won’t.

We’re embarked on a vast battle over the future of the American Republic, in which the executive and much of the judiciary is acting outside the constitutional order.

 In a similar vein, citing John Locke, Johann Neem has argued:

Our republic is quickly becoming a tyranny. Should that happen, we should remember that we have not pledged allegiance to any regime but to a republic. If the republic falls, our pledge does not oblige us to transfer our allegiance to what replaces it. Indeed, it may require us to oppose it.

’Where-ever law ends, tyranny begins,’ Locke wrote in his Second Treatise on Government. . . . . Locke sought to find a way to resist a ruler who comes to power constitutionally but threatens that very constitution.

According to Locke, when a ruler demonstrates their disregard for the constitutional order, they lose legitimacy; we can treat them as we would a ‘thief and a robber.’ …. [W]hen ‘whosoever in authority exceeds the power given him by the law and makes use of the force he has under his command, to compass that upon the subject, which the law allows not, ceases in that to be a magistrate; and, acting without authority, may be opposed, as any other man, who by force invades the right of another.’

There are a few ways in which we are still operating, at least formally, within Constitutional bounds. 

In the first place, T—-p has not openly defied any Court orders, although there are suggestions that his appointees may have ignored several.

Secondly, and perhaps even more importantly, he has not openly defied Congress either. Rather, he is operating with the tacit approval of majorities in both the House and the Senate, who have simply chosen to ignore the intrusions on their power. Presumably at some point T—-p could cross a “red line” where they would object. But if Congress’s supine reaction is also driven by the fear of physical threats from T—-p’s brownshirts, then we are already beyond Constitutional checks and balances.

There have been some similar periods in the past. For example, it wasn’t clear at all that Jefferson had the right to make the Louisiana Purchase without Congressional approval. Congress looked the other way, and at some point retroactively agreed to it. Andrew Jackson famously defied the Supreme Court’s decision that the Cherokee Nation could not be forcibly uprooted from its land. Abraham Lincoln suspended habeas corpus, and argued that Dred Scot was not the law of the land, vs. only binding the litigants in that case. And FDR’s New Deal, which was struck down on many occasions by the Supreme Court before 1938, was enacted by an enthusiastic Congress.

But all of those pale in comparison with the present President for all intents and purposes declaring himself an omnipotent king. And since he has control of the armed forces and the US Marshals, it is not clear that any Congressional act, or any Judicial decision, could be enforced against him short of the use of actual physical force. The idea that we are in a period of Constitutional Interregnum appears well founded.